GBP/USD plunges to 37-year low on abysmal UK retail sales print

Philip McHugh September 20th 2022 - 2 minute read

The pound was met by heavy selling pressure on Friday, following a plunge in UK retail sales.

Sterling is mostly rangebound so far this morning, with GBP/EUR flat at €1.1410 and GBP/USD stable at $1.1440. GBP/CAD and GBP/AUD are holding steady at C$1.5164 and AU$1.7023, respectively, while GBP/NZD climbs to NZ$1.9268.

Looking ahead, will currency volatility be limited today ahead of key central bank rate decisions?

What’s been happening?

The pound tumbled at the end of last week’s session, with the GBP/USD exchange rate striking its worst levels since 1985, following the release of the UK’s latest retail sales print.

Data published by the Office for National Statistics (ONS) reported sales growth plummeted from 0.4% to –1.6% in August. Missing forecasts for a more modest 0.5% contraction.

The collapse in consumer demand weighed heavily on the pound as it stoked recession fears and dampened expectations for this week’s Bank of England (BoE) interest rate decision.

The US dollar, meanwhile, got off to a solid start on Friday with demand for the safe-haven currency being underpinned by risk-off flows.

Another improvement in US consumer sentiment then helped to extend the upside in USD exchange rates through the latter half of the day.

The strength of the US dollar kept a lid on the euro at the end of last week, limiting any gains stemming from a record Eurozone inflation release and fall in European gas prices.

What’s coming up?

Amid a quiet data calendar, movement in the currency market may be limited as investor await some high-impact events later in the week.

The Federal Reserve’s upcoming interest rate decision will undoubtedly be the focus for USD investors. While markets are well priced in for another 75bps rate hike there is an outside chance for a full 100bps increase. Expect to see the US dollar soar if the Fed opts for the latter.

In contrast the BoE’s decision on Thursday could leave the pound on the back foot this week if it looks like the bank will remain cautious and only raise rates by 50bps.

In the meantime, a speech by European Central Bank (ECB) President Christine Lagarde could offer fresh direction to the euro later this evening.

Written by
Philip McHugh

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